H.J. Heinz Co. v. Starr Surplus Lines Insurance Co.

H.J. Heinz Company (plaintiff) applied for a contamination-insurance policy from Starr Surplus Lines Insurance Company (defendant). Prior to its application, Heinz had purchased similar insurance from other insurers that all covered Heinz subject to a $20 million self-insured retention (SIR) which, like a deductible, represented the amount of loss an insured had to bear before insurance applied. Heinz requested a $5 million SIR from Starr. Heinz answered no to Starr’s questions regarding recent audits and fines assessed in recent years and did not answer Starr’s question regarding withdrawals, recalls, or stock recoveries within the 10 years prior to its application. However, Heinz attached a spreadsheet showing only one loss exceeding $5 million over the 10 years. Heinz also attached a loss-ratio analysis that projected only one such loss over the next 10 years. Based on Heinz’s disclosures, Starr issued a policy to Heinz with a $5 million SIR. Two weeks after the policy issued, baby food that Heinz manufactured in China was recalled for lead contamination; Heinz claimed the loss with Starr. Starr hired external investigators and learned that Heinz had not disclosed an over $10 million loss it incurred due to an earlier nitrate contamination of its baby food. Following the discovery, Starr reserved its right to withhold coverage, and Heinz sued Starr in federal court. Starr countersued for rescission of the policy due to Heinz’s misrepresentations. Before hearing Heinz’s claims, a jury found that Heinz had made material misrepresentations but that Starr had waived its right to rescission. The district court adopted the misrepresentations finding but not the waiver findings, concluding that Starr had promptly sought rescission after a reasonable period of investigation. Judgment was entered for Starr. Heinz appealed.